U.S. Income-Based Repayment Plan May Be the ‘Best Deal’ for Borrowers

10/15/2013

The Chronicle of Higher Education. October 7, 2013. Two panel discussions here on Friday, hosted by theNew America Foundation, delved into some of the new ways being proposed to ameliorate the thorny problem of student-loan debt. One existing solution, the federal government’s income-based repayment plan, wasn’t mentioned until afterward, but then it received a qualified endorsement.

The first panel included entrepreneurs from organizations that use private investors’ money to pay college students’ costs of attendance in return for a portion of their future earnings. The entrepreneurs included Miguel Palacios, an assistant professor of finance at Vanderbilt University and a co-founder of Lumni Inc.;Dave Girouard, chief executive and founder of Upstart; and Gordon H. Taylor, director and adviser for 13th Avenue Funding, a nonprofit group, as well as associate dean for finance and administration at the University of Oregon.

Their discussion largely focused on the problems in the current system of federally backed loans and the challenges of using private capital to help the nation reach its goal of increasing college-completion rates.

The panel also included John Burbank, executive director of the Economic Opportunity Institute, an independent nonprofit group in Washington state. The institute has proposed using state tax dollars to pay tuition at public colleges in return for a percentage of students’ future earnings. The proposal, known as the Pay It Forward plan, is being considered for potential pilot projects in several states, though it has also come under fire from several higher-education and labor organizations, led by the nonprofit Education Trust, which has described it as a way to shift more of the cost of college onto students.

The second panel probed the pros and cons of all the plans, including how to prevent discrimination in determining which students get financed, whether such measures would do anything to control the actual cost of higher education, and if the publicly financed option, Pay It Forward, would lead to future state disinvestment in higher education.

After the panels wrapped up, however, Jason Delisle, director of New America’s program on the federal education budget, pointed out that students already have the option of repaying their education costs based on income under the federal Pay as You Earnprogram.

The New American Foundation has criticized Pay as You Earn because it provides a windfall for high-income borrowers, who would be able to have large amounts of debt forgiven despite their earnings. On Friday, however, Mr. Delisle said that, compared with the privately financed options, “federal income-based repayment is still the best deal in town.”